Large investors and some leading brokerages slammed the proposed merger of Cairn India into Vedanta as a big negative for minority shareholders.MUMBAI: Emerging markets private equity group Abraaj and a consortium of PD Hinduja Hospital and Everstone Capital Advisors are among those to emerge as the frontrunners to acquire Hyderabad-headquartered multi-speciality hospital chain CARE Hospitals from its current private equity owners Advent International. They are competing with rival offers from another combination of South African healthcare chain Netcare and Bain Capital, Singapore’s Temasek Holdings and Baring Private Equity Asia.

All five have submitted binding offers at the end of last month and are currently engaged in final negotiations, said multiple sources aware. By this month end, a formal announcement is due.

The shortlisted candidates have been handpicked from a keenly contested process that had earlier seen interests from China’s Fosun Group, Malaysia’s IHH Healthcare Bhd, private equity heavyweights Carlyle and domestic rivals like Manipal Hospitals. Such strategic and financial sponsor interests for private hospital chains underscore the potential of a market that is witnessing compound annual growth rate of around 13% as affluent Indians get willing to pay a premium for better equipped facilities. Most of the offers have valued the chain at Rs 1500 crore - Rs 1800 crore inclusive of its debt, added the sources mentioned above.

Earlier in April, Advent had roped in investment bank Moelis & Co and Capital Fortunes to help them cash out of their three year old investment. In 2012, it had acquired the controlling 72% in the chain for $105 million from a bunch of investors including Big Bull Rakesh Jhunjhunwala, Nimmagadda Prasad, the founder of Matrix Labs and UK-based Ashmore. The remaining stake is held by some of the doctors working for the healthcare chain.At this valuation, Advent will be making a near 3 times return in a 2012 investment. Depending on the final offers, the minority investors too may choose to cash out.

The CARE Hospitals Group, owned and managed by Quality CARE India Ltd, runs 17 hospitals across nine cities in India and a total bed capacity of 2,400. Founded in 1997 by Dr B. Soma Raju and a team of cardiologists, CARE Hospitals also runs a network of telemedicine hubs in rural Andhra Pradesh and Maharashtra. Its founders developed Asia's first indigenous coronary stent. The chain plans to add 300 to 400 beds over the next 18 months, said sources.

According to filings from the Registrar of Companies (ROC), in FY’14, the chain clocked an EBITDA of Rs 39.9 crore on a total income of Rs 397 crore. Analysts expect it to close FY16 with a close to Rs 100 crores in EBITDA.

Hinduja Group, Bain, Advent, Abraaj, Temasek and Everstone declined to comment on speculation. Netcare, Temasek and Baring Asia did not respond to ET’s mails seeking comments till it goes to the press.

VARIED INTERESTS

Founded 13 years ago by Pakistani businessman Arif Naqvi, Dubai based Abraaj which manages $9 billion of assets and has been expanding beyond its original Middle Eastern, North African and South Asian focus into other growth markets like the Indian sub-continent since acquiring Aureos Capital in 2012. Earlier this year, it also launched a billion plus new fund to build new healthcare services in Sub-Saharan Africa and the Indian sub-continent.

PD Hinduja Hospital – part of the $25 billion diversified oil-to-financial-services conglomerate Hinduja Group, has been in operation since 1951 but has largely been a Mumbai centric player. CARE fits into its ambitions to grow pan-India. South Asia focused PE house Everstone – founded in 2006 by former Goldman Sachs executives Atul Kapoor and Samir Sain – late last month sold its stake in Global Hospitals to Malaysia’s IHH Healthcare for Rs 1,284 crore. Everstone has raised $700 million in its third fund to invest mainly in consumer facing companies.

South Africa’s largest private hospital network Netcare has been trying to make a headway in India. It has been in talks to buy Mumbai’s Seven Hills Hospitals and south India-based Vasan Eye Care while Bain, one of the largest U.S. asset managers, managing about $70 billion, has bought Emcure Pharma from Blackstone in 2013. Singapore sovereign investment arm Temasek has been amongst the earliest and most prolific PE investor in India with over $1 billion in FY15 and has already invested another billion so far in FY16. With a new $4 billion Asia fund at its disposal, Baring Asia too have been scouting for consumer assets to back after acquiring Hexaware.

Healthcare sector experts have a mixed reaction about the prospects of CARE. “It is a fully juiced out asset and doesn’t throw out cash like a Medanta or Apollo. It is also largely based in Tier II cities and have smaller operations while its flagship property is in Hyderabad, a fiercely competitive market,” said an investment banker following this trade.

ACQUISITION TARGETS

The fragmented healthcare space has been an acquisition target for financial investors as well as strategic players as the sector offers great long-term potential, analysts and investment bankers said.

“In a highly fragmented healthcare market like India, where 90% of the hospitals are in the unorganized segment (primarily regional non-pan Asia players), we believe prospects for inorganic growth are one of the highest across Asia", Barclays said in a note earlier this week.

Indian healthcare market has significant long term growth potential sharing similar growth drivers as other key regional markets, Barclays said. “We expect the Indian healthcare sector to grow to $350-380 billion by 2025E at a CAGR of 13-14%.”

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